EU chems stocks dip as UK PM confirms single market exit plans

LONDON (ICIS)–European chemical stocks were trading down on Tuesday as UK Prime Minister Theresa May confirmed that the country intended to break away from the union’s single market ruling out a less dramatic EU exit.

Publicly setting out her intentions for the form the UK’s planned departure from the EU will take, May stated that the country would not attempt to remain in the single market, and will instead pursue a new free trade agreement with the bloc from outside.

Ahead of a UK Supreme Court verdict on whether the validity of the referendum needs to be upheld by a government vote, May confirmed for the first time that the final terms of a deal would be put to the UK’s House of Commons and House of Lords.

Many models for a UK exit from the EU following the referendum on the issue in June 2016 envisaged the country retaining some form of single market membership, but May stated that the likely concessions that such an arrangement would dictate negated the purpose of leaving the EU.

“Being out of the EU but in the single market would mean complying with EU regulations without having a vote on what those regulations are. It would mean accepting a role for the European Court of Justice. It would mean not leaving the EU at all,” she said, speaking in London.

The UK chemical industry has been downbeat on the business prospects of the UK’s departure from the EU, with a “hard Brexit” – similar to the plans outlined by May – seen by many as the worst-case scenario.

May’s speech contained few words of comfort for executives concerned about the economic impact of a complete break from the single market, but May identified science research as one of the UK’s 12 priorities in negotiating an exit from the EU.

“We will also welcome agreement to continue to collaborate with our European partners on major science, research, and technology initiatives,” she said, noting that the UK’s status as a key import market for European chemicals producers was another reason for the EU not to penalise the UK in exit negotiations.

May also hinted at the potential for worker representation on the boards of listed companies, but declined to outline explicit safeguards for EU nationals working in the UK.

Speaking in London on Tuesday, the UK premier underlined that stronger immigration controls and ending the jurisdiction of the European Court of Justice over UK law as two of the key goals of the Brexit process, as well as the reduction of payments to the EU.

She demurred from committing to as clean a break from the EU Customs Union as from the single market, stating that full membership prevents comprehensive trade deals but that the UK is seeking to retain tariff-free trade with Europe.

The country will also be seeking to have concluded an agreement on the terms of the its future relationship with EU member states before the end of the two-year Article 50 exit process, expected to begin in March this year.

A phased withdrawal for the UK would be preferable for both sides of the exit talks than a “cliff-edge” break that could destabilise European markets, according to May.

However, the UK is prepared to make a complete break from the EU rather than accept terms that are unfavourable, she said, calling a punitive deal “an act of calamitous self-harm for the countries of Europe… [and] it would not be the act of a friend.”

“The kind of agreement I have described today is the economically rational thing that both Britain and the EU should aim for. Because trade is not a zero sum game: more of it makes us all more prosperous… no deal for Britain is better than a bad deal for Britain…,” she added.

European chemicals stock values dropped modestly from Monday’s close after the speech, but no significant market unrest was evident after May’s speech concluded. Shares in BASF were trading down 0.32% from Monday, while Brenntag stock was down 1.49%.

The pound rallied slightly from Tuesday morning over the course of May’s speech, reaching over €1.15/£1 as of 12:50 GMT compared to €1.14/£1, but the rally follows a series of devaluations in the currency since trading began this week, following the publication of many of the key aspects of May’s Tuesday speech in the UK media on the weekend.

An interview with CIA chief executive Steve Elliott on Theresa May’s speech will be published on ICIS on Wednesday 18 January.

Focus article by Tom Brown